AU SFB shares surge, brokerages see more upside; what's keeping D-Street excited

AU Small Finance Bank shares were in demand during Thursday’s trading session after the Reserve Bank of India approved the re-appointment MD and CEO for a period of three years.

Investors cheer on reappointment news as the stock jumped nearly 16 per cent to touch a day’s high of Rs 671.85 per share on the BSE intraday. This is quite near to its 52-week high of Rs 732.90 apiece, touched on April 21, 2022.

At around 11:40 AM, the counter was quoted at Rs 667.70 apiece, up Rs 87.25 or 15.03 per cent from the previous day’s closing of Rs 580.45 per share on the BSE.

According to AU Small Finance Bank exchange filing, “Reserve Bank of India in its letter dated 12th April 2023, has approved a re-appointment of Mr. Sanjay Agarwal as Managing Director & CEO for a period of 3 years with effect from 19th April 2023 till 18th April 2026.”

Amid this development, the global brokerages are upbeat on this midcap lender as Morgan Stanley gives an ‘overweight’ rating with a target price of Rs 835 per share, while Citi maintained a ‘buy’ call with a target of Rs 740 a share on the stock. They see up to 44 per cent upside in the counter.

With full tenure extension and a peaking interest rate cycle, Morgan Stanley expects AU Small Finance Bank stock to stop de-rating and it believes that the counter may see a strong re-rating over the next few years amid strong earnings compounding.

Similarly, Citi noted that the re-appointment of MD and CEO reflects a stance of confidence and is of the view that the stock to unwind underperformance as there is improved visibility of sustaining return on assets (RoA).

AU Small Finance Bank shares declined around five per cent in the last one year against an almost two per cent rise in the Nifty50. The stock in the last six months has grown nearly 15 per cent versus over a four per cent gain in the benchmark index.

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